Ricardo says, assume the total value of commodities produced in a year is £20 million, and to provide the necessaries required to reproduce labour-power is equal to £10 million. The net revenue, or surplus value, is then £10 million. However, Ricardo says, its possible that wages might be £12,13 or £14 million, in which case the surplus value would be reduced to £6, £7 or £8 million. The rest would be divided between capitalists and landlords. But, it wouldn't change the fact, Ricardo says, that the net income was still £10 million. It would simply mean that workers obtained some of this net income, as well as capitalists and landlords, in addition to their wages.
Ricardo continues,
“Suppose such a society paid 2 millions in taxes, its net income would be reduced to 8 millions” (l.c., pp. 512–13.)” (p 548)
That is not quite right. The net income would still be £10 million, but £2 million would now constitute revenue for the state, just as previously part represented revenue for landlords or capitalists.
Ricardo then sets out his difference with Smith, in relation to the importance of the net revenue as opposed to gross revenue. In Chapter XXVI, Ricardo says,
“What would be the advantage resulting to a country from […] a great quantity of productive labour, if, whether it employed that quantity or a smaller, its net rent and profits together would be the same. The whole produce of the land and labour of every country is divided into three portions: of these, one portion is devoted to wages, another to profits, and the other to rent.” (p 548-9)
This is, of course, wrong, because it omits the constant capital, but Marx is setting that aside, for now.
Ricardo makes the point that taxes are only deducted from profit and rent, because, if wages are actually equal to the value of labour-power, it is impossible to deduct tax from wages, and for those wages to be adequate to enable labour-power to be reproduced. He says,
““It is from the two last portions only, that any deductions can be made for taxes, or for saving; the former, if moderate, constituting always the necessary expenses of production” [l.c., p. 416].” (p 549)
This reinforces what I said earlier that taxes from wages are really just prices for those wage goods such as health and social care, education and so on, which workers buy from the capitalist state, in the same way that under the Truck System, employers used to deduct money from workers wages to cover the price of the groceries etc. they sold to their workers, before the practice was outlawed. Ricardo argues that this may not be absolutely the case, because workers obtain more than the bare minimum in wages, and so can pay taxes from that share of the surplus value they obtain, in addition to their wage. This idea was also adopted by the Ricardian-socialists, and is the basis of the reformist concept of social-democrats that workers, by trades union struggle, and its extension into the welfare state, can bargain so as to obtain a share of those profits. So, Ricardo says,
““Perhaps this is expressed too strongly, as more is generally allotted to the labourer under the name of wages, than the absolutely necessary expenses of production. In that case a part of the net produce of the country is received by the labourer, and may be saved or expended by him; or it may enable him to contribute to the defence of the country” [l.c., p. 416]” (p 549)
Ricardo can argue this, because he does not have a theory whereby profit/surplus value is objectively determined. He takes the existence of surplus value as given, without explaining, as Smith does, where it comes from, and why it is some particular amount. If he did, he would have to admit that the necessary labour, and also the surplus labour, are objectively determinable, so that whilst subjective factors, which influence supply and demand, might cause wages to be sometimes higher than the value of labour-power, they likewise cause them, at other times, to fall below the value of labour-power, and the whip hand, in these relations, always resides with capital. So, for example, if labour, at some points, negotiates wages (including the social wage, provided via the welfare state) to be higher than the value of labour-power, this encourages capital to develop labour-saving technology. That reduces the demand for labour-power, and creates a relative surplus population, which causes wages to fall, as the supply of labour-power exceeds demand.
Moreover, in relation to the social wage component of wages/variable-capital, Alan Freeman, in Quantitative Marxism, some time ago, showed that in every year since WWII, workers had paid more in taxes and insurance contributions than the value of benefits and pensions etc. they had received from the welfare state. In other words, instead of the welfare state representing a transfer out of surplus value to workers, it represents the opposite, of capital screwing surplus value out of workers by means other than just direct exploitation in the workplace.
And, Ricardo goes on to show why this is possible for capital, precisely because its aim is the maximisation of surplus value, and not the maximisation of value or gross product.
““To an individual with a capital of £20,000, whose profits were £2,000 per annum, it would be a matter quite indifferent whether his capital would employ a hundred or a thousand men, whether the commodity produced, sold for £10,000, or for £20,000, provided, in all cases, his profits were not diminished below £2,000. Is not the real interest of the nation similar? Provided its net real income, its rent and profits be the same, it is of no importance whether the nation consists of ten or of twelve millions of inhabitants. Its power of supporting fleets and armies, and all species of unproductive labour, must be in proportion to its net, and not in proportion to its gross income. If five millions of men could produce as much food and clothing as was necessary for ten millions, food and clothing for five millions would be the net revenue. Would it be of any advantage to the country, that to produce this same net revenue, seven millions of men should be required, that is to say, that seven millions should be employed to produce food and clothing sufficient for twelve millions? The food and clothing of five millions would be still the net revenue. The employing a greater number of men would enable us neither to add a man to our army and navy, nor to contribute one guinea more in taxes” (l.c., pp. 416–17).” (p 549)
In other words, capital not only has no real interest in maximising the size of the gross product or national income, only of maximising the net product or surplus value. And, for the same reason, it has no real interest in maximising employment. It only has interest in maximising employment of productive-labour, i.e., that labour which by its employment produces additional surplus value. If capital can produce more surplus value by reducing the amount of labour employed, which may thereby reduce the total value of output, but which also reduces the cost of producing that output, it will do so, and by doing so, it will also thereby release labour, causing downward pressure on wages.
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